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Exhibit 2.1
EXECUTION COPY
MERGER AGREEMENT
by and among
IVOW, INC.,
iSHS Merger Sub, Inc.
and
SOUND HEALTH SOLUTIONS, INC.
TABLE OF CONTENTS
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MERGER AGREEMENT
THIS MERGER AGREEMENT (“ Agreement ”) is made and entered into as of the 7th day of October 2005, by and among IVOW, INC. , a Delaware corporation (hereinafter referred to as “ Purchaser ”) , iSHS MERGER SUB, a Washington corporation (hereinafter referred to as the “ Merger Sub ”), SOUND HEALTH SOLUTIONS, INC., a Washington corporation (hereinafter referred to as the “ Company ”) and each of TERESA M. GIROLAMI (“Girolami”), FRANCES M. GOUGH (“ Gough ”), NEVIL HERMER (“ Hermer ”) and PATRYCE CHAVIS (“ Chavis ”).
W I T N E S S E T H:
WHEREAS, the Merger Sub is a wholly-owned subsidiary of Purchaser formed for the purposes of the transaction contemplated hereunder;
WHEREAS, the respective Boards of Directors of Purchaser, the Merger Sub and the Company have approved the merger of the Merger Sub with and into the Company described in Article 1 hereof (hereinafter referred to as the “ Merger ”), and have determined that the Merger is in the best interests of Purchaser, the Merger Sub and the Company and their respective stockholders;
WHEREAS, for Federal income tax purposes, it is intended that the Merger shall qualify as a reorganization under the provisions of Section 368 of the Internal Revenue Code of 1986, as amended (hereinafter referred to as the “Code”); and
WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition and material inducement to Purchaser’s willingness to enter into this Agreement, each of Girolami and Gough is executing and delivering to Purchaser (a) a physician independent contractor agreement in substantially the form attached hereto as Exhibit A (each, a “ Consulting Agreement ”), (b) a confidentiality and noncompetition agreement in substantially the form attached hereto as Exhibit B (each, a “ Noncompetition Agreement ”), which Consulting Agreements and Noncompetition Agreements shall become effective only upon the Effective Time (as defined in Article 1) and (c) together with Chavis, the Repurchase Agreement (the “ Repurchase Agreement ”) relating to certain shares of the Purchaser common stock to be received, subject to a repurchase right in favor of the Purchaser, by Girolami, Gough and Chavis upon the Closing (as defined below).
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the parties hereto hereby agree as follows:
ARTICLE 1The MergerSection 1.1 . Merger and the Surviving Corporation . Subject to the terms and conditions of this Agreement, the Merger Sub shall be merged with and into the Company, which shall be the surviving corporation in the Merger, in accordance with the Washington
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Business Corporation Act of the State of Washington. The Merger shall become effective upon the filing with the Secretary of State of Washington of a properly executed articles of merger with respect thereto (hereinafter referred to as the “Articles of Merger”) or at such later time, if any, as may be agreed to by the parties hereto and specified in the Articles of Merger. The time when the Merger shall become effective is hereinafter referred to as the “ Effective Time .” For purposes hereof, the term “ Constituent Corporations ” shall mean the Merger Sub and the Company and the term “Surviving Corporation” shall mean the Company as the corporation surviving in the Merger.
(a) At the Effective Time, by virtue of the Merger, the Merger Sub shall be merged with and into the Company, with the Company being the surviving corporation, and all the rights, privileges, powers and franchises of each of the Merger Sub and the Company and all property, real, personal and mixed, and all debts due on whatever account, including things in action, and all and every other interest of or belonging to or due to each of the Merger Sub and the Company shall be vested in the Surviving Corporation and shall be as effectually the property of the Surviving Corporation as they were of the Merger Sub and the Company without further act or deed, and the Surviving Corporation shall be responsible and liable for all the debts, liabilities and duties of each of the Merger Sub and the Company, all with the full effect provided for in the laws of the state of Washington. If at any time the Surviving Corporation shall determine or be advised that any further action is necessary or desirable to vest in the Surviving Corporation, according to the terms hereof, title to any property or any rights of the Constituent Corporations or to carry out the purpose of this Agreement, the last acting officers and directors of the Company to the extent such persons are available, or the corresponding officers and directors of the Surviving Corporation, as the case may be, shall be authorized to take such action.
(b) The articles of incorporation of the Merger Sub in effect immediately prior to the Effective Time shall be the articles of incorporation of the Surviving Corporation at and after the Effective Time, until amended in accordance with the provisions thereof and the laws of the state of Washington, except that at the Effective Time such articles of incorporation shall be amended as set forth in the Articles of Merger. The Surviving Corporation shall be governed by the laws of the State of Washington.
(c) The bylaws of the Merger Sub in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation at and after the Effective Time, until altered, amended or repealed as provided therein and in the articles of incorporation of the Surviving Corporation.
(d) The directors of the Merger Sub in office immediately prior to the Effective Time shall be the directors of the Surviving Corporation at and after the Effective Time, until their successors are elected in accordance with the bylaws of the Surviving Corporation.
(e) The officers of the Merger Sub in office immediately prior to the Effective Time shall be the officers of the Surviving Corporation at and after the Effective Time, holding the offices in the Surviving Corporation which they held in the Merger Sub immediately prior thereto, until their successors are elected or appointed in accordance with the bylaws of the Surviving Corporation.
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Section 1.2. Conversion of Stock.
(a) At the Effective Time of the Merger, by virtue of the Merger and without any action on the part of the Merger Sub, the Company or the holders of any shares of the capital stock of the Company (each, a “ Company Stockholder ”), each share of the Common Stock, $.01 par value, of the Company issued and outstanding immediately prior to the Effective Time (the “ Company Common Stock ”), subject to Section 1.11, shall be cancelled and be extinguished and be converted into and become a right to receive (hereinafter referred to as the “ Merger Consideration ”):
(i) subject to the provisions of Section 1.11, cash, without interest, in the amount equal to the quotient of $125,500 divided by the sum of (x) the aggregate number of shares of the Company Common Stock issued and outstanding immediately prior to the Effective Time (hereinafter referred to as the “Issued and Outstanding Number”) plus (y) the aggregate number of shares of the Company Stock which the Company would be required to issue to the holders of any options, warrants, convertible securities or other contracts or rights existing immediately prior to the Effective Time entitling the holders thereof or parties thereto to acquire shares of the Company Stock assuming all of such options, warrants, convertible securities or other contracts or rights were then fully exercisable or convertible and were exercised or converted (hereinafter said sum is referred to as the “ Fully-Diluted Number ”), (the aggregate amount of cash payable pursuant to this clause (i) is hereinafter referred to as the “ Merger Cash ”);(ii) subject to the provisions of Section 1.11, the right to receive that number of shares of the common stock, $.01 par value, of Purchaser hereinafter referred to as “Purchaser Common Stock”) which is equal to the quotient of 3,040,440 divided by the Fully-Diluted Number (exclusive of any fractional shares and without taking into consideration the application of the following proviso) is hereinafter referred to as the “ Merger Shares ”); provided however that the Merger Shares shall be reduced by that number of shares of Purchaser Common Stock equal to the quotient of $25,000 and the running average sales price for the Purchaser Common Stock for the 5 trading days immediately prior to the Closing Date.(iii) the right to receive a proportionate amount of distributions payable to or for the benefit of the holders of the Company Stock pursuant to the Holdback (as such term is hereinafter defined) pursuant to which Purchaser or the Merger Sub will deposit 15% of the Merger Shares (the “ Holdback Shares ”) on the Closing Date immediately prior to the Effective Time, which proportionate amount shall be equal to the quotient of the amount of any such distribution divided by the Fully Diluted Number; and(b) Each outstanding share of the common stock of the Merger Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, be cancelled and extinguished and be converted into and become the right to receive one share of the common stock of the Surviving Corporation.
(c) Notwithstanding any other provisions of this Agreement, each Company Stockholder whose Company Common Stock was exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Purchaser Common Stock (after taking into
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account all certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of Purchaser Common Stock multiplied by the Purchaser Common Stock Price on the Closing Date. No such holder will be entitled to dividends, voting rights or any other rights as a stockholder in respect of any fractional share. As of the Effective Time, any share of Company Common Stock that is owned by the Company or held in treasury shall, by virtue of the Merger, shall be cancelled and retired and no Merger Consideration or other consideration shall be delivered in exchange therefor.
(d) If, in connection with the Merger, any Company Stockholder shall have demanded and perfected dissenters’ rights pursuant to Chapter 23B.13 of the Washington Business Corporation Act (such shares as to which the related Company Stockholder has so demanded and perfected such rights referred to herein as “ Dissenting Shares ”), such Dissenting Shares shall not be converted into a right to receive a portion of the Merger Consideration or any other amount payable with respect to such Company Common Stock in accordance with this Agreement, but shall be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to the laws of the State of Washington. Each holder of Dissenting Shares who, pursuant to the provisions of the laws of the State of Washington, becomes entitled to payment of the fair value of such shares shall receive payment therefor in accordance with the laws of the State of Washington (but only after the value therefor shall have been agreed upon or finally determined pursuant to the laws of the State of Washington). In the event that any Company Stockholder fails to make an effective demand for payment or fails to perfect its dissenters’ rights as to its shares of Company Common Stock or any Dissenting Shares shall otherwise lose their status as Dissenting Shares, then any such shares shall immediately be converted into the right to receive the consideration issuable pursuant to this Agreement in respect of such shares as if such shares had never been Dissenting Shares, and the Purchaser shall issue and deliver to the holder thereof, at or as promptly as reasonably practicable after the Effective Time, following the satisfaction of the applicable conditions set forth in Article 4, the applicable portion of the Merger Consideration, with respect to such stockholder’s shares, subject to the provisions of Section 1.2(e) (regarding the Holdback Shares). The Company shall give the Purchaser (i) prompt notice of any demand received by the Company for notice of exercise or withdrawal of a Company Stockholder’s dissenters’ rights in accordance with the laws of the State of Washington and (ii) the opportunity to direct all negotiations and proceedings with respect to dissenters’ rights under the laws of the State of Washington. The Company agrees that, except with the Purchaser’s prior written consent, it shall not voluntarily make any payment or offer to make any payment with respect to, or settle or offer to settle, any such exercise of dissenters’ rights.
(e) On the Closing Date, Purchaser shall hold back from the Merger Consideration to be paid to the Company stockholders the Holdback Shares, said Holdback Shares to be available for any Losses (as such term is defined in Section 10.2 hereof) for which Purchaser may make a claim pursuant to Article 10. The Holdback Shares shall be released as provided in Section 11.4 hereof.
Section 1.3. Share Adjustments.
The numbers of Merger Shares, Holdback Shares, Earn-Out Shares, and any other share numbers referenced in this Agreement, and all calculations based thereon or involving the
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Purchaser Common Stock contemplated by this Agreement, shall be appropriately adjusted upwards or downwards, as the case may be, for any stock dividends, combinations, splits or reverse splits with respect to such shares occurring after the date of this Agreement.
Section 1.5. Surrender of Certificates.
(a) On the Closing Date, Purchaser or the Merger Sub will deliver, or cause to be delivered, to each Company Stockholder that portion of the Merger Consideration which such Company Stockholder has the right to receive pursuant to Section 1.2(a), subject to the terms Section 1.2(e) (regarding the Holdback Shares) and Section 1.5(b).
(b) As a condition of obtaining the Merger Consideration, each Company Stockholder shall provide such certificate(s) which immediately prior to the Effective Time represented shares of Company Common Stock of the Stockholder (the “ Certificates ”), together with such duly executed instruments of endorsement required to transfer such Certificates. In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the stockholder claiming such Certificate to be lost, stolen or destroyed, Purchaser shall, as promptly as practicable following the receipt by Purchaser of the foregoing documents, subject to the terms of Section 1.2(e) (regarding the withholding of the Holdback Shares), issue in exchange for such lost, stolen or destroyed Certificate that portion of the Merger Consideration and any other amount payable pursuant to Section 1.2(a) represented by the lost, stolen or destroyed Certificate in exchange therefor which the Company stockholder has the right to receive. Purchaser may, as a condition precedent to the issuance thereof require the owner of such lost, stolen or destroyed Certificate to provide to Purchaser an indemnity agreement or bond against any claim that may be made against the Purchaser with respect to the Certificate alleged to have been lost, stolen or destroyed.
(c) From and after the Effective Time, no shares of Company capital stock will be deemed to be outstanding, and holders of Certificates formerly representing such Company Common Stock shall cease to have any rights with respect thereto except as provided herein or by applicable law.
(d) At the Effective Time, the stock transfer books of Company shall be closed and no transfer of Company capital stock shall thereafter be made. If, after the Effective Time, Certificates formerly representing shares of Company Common Stock are presented to Purchaser or the Surviving Corporation, they shall be cancelled and exchanged for that portion of the Merger Consideration and any other amount payable with respect to such Company Common Stock in accordance with the provisions of this Agreement.
(e) There shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be surrendered and cancelled as provided in paragraph (c) of this Section.
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Section 1.7. Reliance Upon Exemption. The Purchaser Common Stock to be issued pursuant to this Agreement will be issued without registration under the Securities Act of 1933, as amended (the “ Securities Act ”), and in reliance upon an exemption from the registration requirements of the Securities Act. Purchaser will issue shares of Purchaser Common Stock pursuant to this Agreement in reliance upon the representations from Company Stockholder set forth in Section 3.4 of this Agreement. The Company agrees that any person who receives Purchaser Common Stock who by himself or herself or which by itself would not qualify as an “accredited investor,” as such term is defined under Rule 501(a) of Regulation D promulgated under the Securities Act, without having a “ Purchaser Representative ,” as such term is defined under Rule 501(h) of the Securities Act, will have a Purchaser Representative as so defined.
Section 1.8. Stock Certificate Legends . All certificates evidencing Purchaser Common Stock which are to be issued in connection with the Merger will bear the following legend, together with any legends required by applicable state law:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT AND STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM IS AVAILABLE AS ESTABLISHED BY A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION.
Section 1.9. Tax Consequences. It is intended by the parties hereto that the Merger shall constitute a reorganization within the meaning of Section 368 of the Code. The parties hereto adopt this Agreement as a “plan of reorganization” within the meaning of Treasury Regulations Section 1.368-2(g) and 1.368-3(a). The parties agree to report on all Returns, and to take the position in all applicable filing with governmental agencies, the Merger as a statutory merger under Section 368(a) of the Code.
Section 1.10. No Further Ownership Rights in Company Common Stock.
All Merger Consideration shall be deemed to have been issued in full satisfaction of any and all rights pertaining to the Company Common Stock. By accepting the Merger Consideration, each Shareholder waives and forever releases of any claim or action that Shareholder has, may have, or may have had, against any of SHS or the Subsidiary related to, arising from or occurring as a result of the ownership of such Company Shares. Without limiting the foregoing, Girolami, Gough and Hermer further that by accepting the Merger Consideration, each Shareholder is also forever waiving and releasing any claims or rights under (i) the Loan Agreement set forth in Section 2.8, and (i) any deferred compensation, wages, and vacation or other compensation due.
Section 1.11. Directed Payments. Subject to Section 5.13, at any time prior to Closing, the Company may direct that some, or any part of, the Merger Consideration payable to the
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Company Stockholders under Section 1.2(a), shall be paid as provided in Schedule 1.11, which shall be attached hereto prior to the Effective Date (“ Directed Payment ”).
ARTICLE 2Representations, Warranties and Covenants of the Company
As an inducement to Purchaser and the Merger Sub to enter into and perform their obligations under this Agreement, the Company represents and warrants to, and covenants and agrees with, Purchaser and the Merger Sub as follows (provided, however, that the individual schedules required by the following Sections shall be combined into a single disclosure schedule supplied by the Company to Purchaser (the “ Disclosure Schedule ”), the section number and subsection and letters of which correspond to the section and subsection numbers and letters of this Agreement to which they refer). The parties agree that the fact that Purchaser has or has not conducted an examination of the books and records of the Company shall not affect the Purchaser’s rights to any relief or remedy provided under this Agreement or under applicable law, regardless of whether the Company has included disclosure related to a particular matter in the Disclosure Schedule. For purposes of this Agreement the term “knowledge” means with respect to a party hereto, with respect to any matter in question, that any of the managers, officers or directors of such party has or had, or through the advice of counsel or reasonable inquiry or oversight could have had, actual knowledge of such matter.
Section 2.1. Corporate Status. The Company and SHS (Web) LLC, a Washington limited liability company, and wholly-owned subsidiary of the Company (hereinafter referred to as the “Subsidiary”), are each a corporation duly organized, validly existing and in good standing under the laws of Washington, with full legal and corporate power and authority to conduct business as presently being conducted and as proposed to be conducted by it. The Company and the Subsidiary are each duly authorized to transact business and in good standing under the laws of the State of Washington and each jurisdiction in which the nature of its business makes such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. As used in this Agreement, the capitalized term “ Material Adverse Effect ” means a change (or effect) in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, business, or prospects which change (or effect), individually or in the aggregate, could reasonably be expected to be materially adverse to the Company’s or the Subsidiary’s condition, properties, assets, liabilities, rights, obligations, operations, business, or prospects.
Section 2.2. Authority of the Company. The Board of Directors of the Company has deemed the Merger to be advisable and in the best interests of the Company’s stockholders and the Company has all requisite corporate power and authority to enter into this Agreement and, subject to approval of the Merger by the stockholders of the Company, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject to such approval of the Merger by the stockholders of the Company. This Agreement has been duly executed and delivered by the Company and (assuming the valid authorization, execution and delivery of this Agreement by Purchaser and the Merger Sub) constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms. The
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execution and delivery of the Agreement do not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of the Subsidiary under, any provision of (i) the articles of incorporation or by-laws of the-Company, (ii) except as disclosed on Schedule 2.2 , any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or the Subsidiary or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any the Subsidiary or any of their respective properties or assets.
(a) The Company has authorized 100,000,000 shares of capital stock, 25,000,000 of which are Preferred Stock, no par value, none of which are issued and outstanding, and 75,000,000 of which are Common Stock, no par value, 6,180,000 of which are issued and outstanding. The Company has no other authorized or outstanding shares of capital stock of any class, series, designation or description.
(b) The Company owns beneficially and of record all of the membership interests of the Subsidiary free and clear of all pledges, claims liens charges, encumbrances and security interests of any kind or nature whatsoever. The Company agrees that the Subsidiary will not issue or commit to issue any membership interest after the date of this Agreement without the prior written consent of Purchaser. The managers of the Subsidiary are set forth on Schedule 2.3(b) .
(c) All of the authorized, issued and outstanding shares of the capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable and were not issued in violation of the preemptive rights of any person. All of the authorized, issued and outstanding membership interests of the Subsidiary are duly authorized, validly issued, fully paid and nonassessable and were not issued in violation of the preemptive rights of any person.
(d) Except as disclosed in Schedule 2.3(d) , there are no outstanding, and immediately prior to the Effective Time there will be no outstanding, warrants, options, subscriptions, contracts, preemptive or other rights or other arrangements or commitments obligating the Company or the Subsidiary to issue any additional shares of the capital stock of the Company or membership interests of the Subsidiary, nor are there any securities, debts, obligations or rights outstanding which are convertible into or exchangeable for shares of the capital stock of the Company or the Subsidiary. Except as disclosed on Schedule 2.3(d) , neither the Company nor the Subsidiary has issued any options under any Company stock plan.
(e) From and after the date of this Agreement, neither the Company nor the Subsidiary shall issue or grant any warrants, options, subscriptions, contracts, preemptive or other rights or other arrangements or commitments obligating the Company or the Subsidiary to issue any additional shares of the capital stock of the Company or membership interests of Subsidiary, nor
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any securities, debts, obligations or rights which are convertible into or exchange-able for shares of the capital stock of the Company or membership interests of the Subsidiary.
(f) Schedule 2.3(f) sets forth the name of each Company Stockholder, the number of shares held by such stockholder, the address of such stockholder and whether such stockholders’ shares are subject to any restrictions on ownership or transfer.
Section 2.4. Equity Interests of the Company.
Schedule 2.4 contains a description of all equity interests or investments which the Company or the Subsidiary has, directly or indirectly, in any corporation, partnership, limited liability company, joint venture or other entity.
Section 2.5. Annual Financial Statements.
(a) The Company has furnished to Purchaser copies of financial statements of the Company and the Subsidiary for the fiscal years ended 2003 and 2004 (hereinafter the consolidated financial statements of the Company for the year ended December 31, 2004, are referred to as the “ Financial Statements ”), a copy of which is attached hereto as Schedule 2.5 .
(b) Each of the financial statements referred to in Section 2.5(a) is true, correct and has been prepared in accordance with GAAP and is complete in all material respects and fairly presents the financial position of the Company and the Subsidiary, as the case may be, as of the date thereof or, as the case may be, the results of operations and cash flows for the periods covered thereby. Each of the balance sheets contained in said financial statements fully sets forth all material liabilities of whatever nature of the Company and the Subsidiary, as the case may be, existing as of the date thereof, which, under GAAP, are set forth therein. Any non-recoverable work-in-process or accounts receivable included in said balance sheets were written down appropriately. The statements of profit and loss constituting a part of said financial statements correctly state the consolidated revenues and net earnings or losses of the Company and the Subsidiary for the respective periods covered thereby and include adequate provision for all taxes.
Section 2.6. Interim Financial Statements.
(a) The Company has furnished to Purchaser copies of the Company’s unaudited consolidated balance sheet as of August 31, 2005 (hereinafter referred to as the “ Interim Balance Sheet ”), together with a related statement of profit and loss for the period then ended (hereinafter such Interim Balance Sheet and consolidated statement of profit and loss are referred to as the “ Interim Financial Statements ”).
(b) The Interim Financial Statements are true, correct and complete in all material respects and fairly present in all material respects the financial position of the Company and the Subsidiary as of the dates thereof or, as the case may be, the results of operations and cash flows for the period covered thereby. The Interim Balance Sheet fully sets forth, all material liabilities of whatever nature of the Company and the Subsidiary, as the case may be, existing as of the respective dates thereof which, under GAAP, should be set forth therein.
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Section 2.7. Operations. Except as disclosed in Schedule 2.7 , since the date of the Interim Balance Sheet , there has not been any Material Adverse Change and since such date the Company and the Subsidiary have conducted their respective business in the usual, regular and ordinary manner and each shall continue, through and including the Closing Date, to conduct its businesses in such manner, except for the transaction contemplated hereunder, unless prior written approval for any variation therefrom shall have first been obtained from Purchaser. For purposes of this Agreement, the capitalized term “Material Adverse Change” means a change in the business, operations, financial position/assets or properties of the Company or the Subsidiary which may result or has resulted in the creation of or change in a liability or other obligation of, adverse change in or impairment of the condition (financial or otherwise), properties, assets, rights, operations, business, or loss of income or additional expense to, the Company or the Subsidiary, of at least $5,000. Except as disclosed in the Interim Balance Sheet, or in Schedule 2.7 , attached hereto, for the period from September 1, 2005, to and including the Closing Date, the following is and will be true with respect to the Company and the Subsidiary:
(a) All transactions involving the Company and the Subsidiary have been accurately and fully recorded or otherwise reflected in the Company’s and the Subsidiary’s books and records;
(b) No dividend or other distribution of capital, income or retained earnings has been paid or declared on any shares of capital stock of the Company, nor has any distribution otherwise been made to any of the Company’s stockholders, in their capacity as stockholders, directly or indirectly, which involves any assets of the Company;
(c) The Company and the Subsidiary have each followed their past practices with respect to collection of accounts receivable and other amounts owing them;
(d) Neither the Company nor the Subsidiary has sold, exchanged, conveyed or otherwise disposed of, or made subject to lien, pledge, hypothecation, mortgage or other encumbrance, any of its assets;
(e) The Company and the Subsidiary each has paid its debts and liabilities, including taxes, fees, levies and assessments, in the ordinary course as they have matured and has not prepaid any of such debts, liabilities or taxes, in whole or in part;
(f) Neither the Company nor the Subsidiary has incurred any debt, obligation or liability, other than those incurred in the ordinary course of its business which are not of a material nature or amount and which do not or will not presently, with the passage of time or upon default, subject its assets to any lien, claim, charge, mortgage or other encumbrance, nor has it undertaken to guarantee, in whole or in part, any of the debts, obligations or liabilities of any other party;
(g) Neither the Company nor the Subsidiary has altered, amended, terminated or discharged any written or oral contract, lease, plan, commitment or agreement to which it is presently a party, nor waived any material right with respect thereto, nor permitted or consented to such alteration, amendment, termination or discharge, nor has it committed a breach or default in any of the provisions thereof except breaches and defaults which in the aggregate will not result in a Material Adverse Change;
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(h) Neither the Company nor the Subsidiary has entered into any written or oral contract except for contracts entered into in the ordinary course of business at the prices and upon the terms consistent with existing market conditions and its past practices and such other contracts that are in the ordinary course of business and do not involve more than $5,000 or extend for more than ninety (90) days (or for more than 90 days if such agreement may be terminated by the Company or the Subsidiary without penalty, payment or material detriment) and do not violate any representation, warranty or covenant of this Agreement;
(i) The Company and the Subsidiary have each complied in all material respects with all laws applicable to the conduct of its business;
(j) The Company and the Subsidiary have each conducted its business only in the usual, regular and ordinary course and in substantially the same manner as theretofore conducted;
(k) The Company and the Subsidiary have each kept and will keep in full force and effect through the Closing Date (i) all of the fire, casualty, liability and other insurance now in effect covering its assets, properties and business, and (ii) all bonds on employees and other personnel now in effect;
(l) The Company and the Subsidiary shall each use its best efforts to (i) preserve its present organization intact, (ii) (without making any commitment on behalf of Purchaser or the Merger Sub) keep available the services of its present officers, employees and agents, and (iii) preserve its present relationships with its clients, suppliers, customers and others having business relationships with the Company and the Subsidiary, except for normal personnel changes in the ordinary course of business;
(m) There has not occurred any Material Adverse Change; and
(n) The Company has not taken any action in anticipation of the consummation of the transactions contemplated hereby whose primary motivation is to reduce the value of the Company or the Subsidiary as of the Closing Date to the detriment of Purchaser and for the benefit, directly or indirectly, of one or more of the Stockholders of the Company or Subsidiary.
Section 2.8. Liabilities and Obligations of the Company. Except as provided in Schedule 2.8 , neither the Company nor the Subsidiary will have on the Closing Date any liabilities, direct or indirect, absolute or contingent, determined or undetermined which are not reflected, described or disclosed in (i) the Interim Balance Sheet or (ii) Schedule 2.8 to this Agreement, except for such matters which have been incurred since the date of the Interim Balance Sheet, in the ordinary course of business and which are not of a material nature or amount; provided however, that the Company’s liabilities pursuant to the Loan and Security Agreement, dated August 2, 2004 (the “ Loan Agreement ”) between the Company and Girolami, Gough and Hermer and the deferred compensation and vacation owed to each of Hermer, Gough and Girolami shall no longer appear on the financial statements of the Company and the Company shall have no obligation relating thereto as of the Closing Date.
Section 2.9. Title. Except as set forth in Schedule 2.9 , the Company and the Subsidiary each is the owner of good title to all property and assets, tangible and intangible, which it claims or otherwise purports to own (including, without limitation, all of its assets reflected in the
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Interim Balance Sheet), free and clear of all liabilities, liens, charges, claims, rights, encumbrances and restrictions on transfers, except for liabilities, liens, charges, claims, rights, encumbrance and restrictions on transfers as are not material in amount, or do not materially detract from the use or value of such property and no financing statement covering all or any portion of said property or assets and naming the Company or the Subsidiary as debtor has been filed in any public office, and neither the Company nor the Subsidiary has entered into or authorized the filing of any financing statement or entered into any security agreement as debtor or borrower which financing statement or security agreement covers or grants a security interest in all or any portion of said property or assets.
Section 2.10. Certain Transactions and Agreements. To the knowledge of the Company, none of the officers or directors of the Company, other than as set forth on Schedule 2.10 , and no Company Stockholder, nor any immediate family member of any officer, director or Company Stockholder, has a direct ownership interest of more than 2% of the equity ownership of any Competitive Business (as defined herein), or any company that business with, or has any contractual arrangement with, the Company. None of said officers, directors, Company Stockholders or immediate family members of said officers, directors or Company Stockholders, is a party to, or otherwise directly or indirectly interested in any Material Agreement (as defined herein). “Competitive Business” means any business that competes with the Purchaser or the Company. For clarity purposes, the term “Competitive Business” does include the provision of medical services, including, in particular, the provision of medical services to the obese in connection with the general practice of internal medicine, as is commonly connected to the practice of internal medicine.
Section 2.11. Information and Access. Between the date of this Agreement and the Closing, the Company shall promptly notify Purchaser in writing of any event, occurrence or other matter which becomes known to the Company relating to the Company or the Subsidiary which is reasonably likely to have a Material Adverse Effect. Prior to Closing, Purchaser and its agents, attorneys, accountants, employees, contractors and other authorized representatives shall have the right, at any time and from time to time, to examine the assets, properties, books and records of the Company and the Subsidiary and to make such tests, surveys, investigations and other inspections of the property owned, operated, leased or controlled by the Company or the Subsidiary in such manner as Purchaser may reasonably deem necessary or desirable. No investigation or examination by Purchaser or any of its agents or representatives of such assets, properties, books and records of the Company or the Subsidiary shall affect the representations and warranties of the Company contained in this Agreement.
(a) The Company and the Subsidiary have in effect such insurance coverage as is described in Schedule 2.12(a) , which description includes the name of the insurer, the policy number, the name of the insureds, and a summary of the type and amount of coverage and risks insured, and the Company has delivered (or made available) to Purchaser complete and accurate copies of all such insurance policies. Such insurance coverage, as to amounts and types of coverage and risks insured, is adequate for the business of the Company and the Subsidiary as presently conducted. From the date hereof until the Closing the Company agrees to cause the Company and the Subsidiary to maintain such insurance coverage respecting the assets of the
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Company and the Subsidiary as is necessary to adequately insure said assets against damage or destruction.
(b) Schedule 2.12(b) attached hereto and hereby made a part hereof contains a list and description of all claims involving more than $1,000 made by the Company or the Subsidiary against the insurance policies held by the Company or the Subsidiary for the previous three (3) years, including, without limitation, all product liability claims and workers’ compensation claims, but excepting therefrom claims made by employees of the Company or the Subsidiary against its health insurance plan carrier, and the Company has delivered (or made available) to Purchaser complete and accurate copies of all insurance policies held by the Company for the previous three (3) years.
Section 2.13. Litigation and Claims.
(a) Except as set forth in Schedule 2.13 , there are no suits, claims, litigation, arbitration, demands or proceedings pending, asserted in writing or, to the knowledge of the Company, threatened against or relating to the Company or the Subsidiary, or its business, properties, assets or activities nor to the knowledge of the Company is there in existence any judgment or award against the Company or the Subsidiary related to or affecting its business, properties, assets or activities. To the knowledge of the Company, neither the Company nor the Subsidiary is under investigation for violation of any law or regulation related to or affecting the business, properties, assets or activities of the Company or the Subsidiary.
(b) Except as set forth in Schedule 2.13 , no claims have been asserted and not resolved or withdrawn against the Company or the Subsidiary in respect of defects in quality, completion of contracts, deficiencies of design, performance of equipment or otherwise relating to liability for products or services supplied or to be supplied by the Company or the Subsidiary and, to the knowledge of the Company, no such claims are threatened or anticipated.
Section 2.14. Employment Obligations.
(a) Schedule 2.14(a) attached hereto and hereby made a part hereof lists the names, commencement dates of employment and the current salary and other compensation rates of all present employees and employees on any leave of absence or who are guaranteed reemployment, by agreement, statute or otherwise, of the Company and the Subsidiary, together with a listing of all other employment benefits therefor, including, without limitation, personal leave time, accrued vacation, employee loans and the amount of all profit sharing and pension benefits, which have accrued for such persons as of the date hereof, an accurate summary of any pension, profit sharing, bonus, medical benefits, insurance or similar arrangements for the employees of the Company and the Subsidiary, salaried or nonsalaried, including any formal or informal plans, the funding arrangements with regard thereto and all severance pay which would be due each employee if his or her employment were to be terminated as of the Closing Date. Except as and to the extent set forth in Schedules 2.14 and Schedule 2.15 , there are no agreements, contracts or understandings between the Company and its employees or the Subsidiary and its employees, and with respect to employment, wages, expenses, allowances, vacations, unpaid leave, hours, working conditions, bonuses, salaries, pensions, profit sharing, medical benefits, insurance benefits, severance pay or otherwise.
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(b) Schedule 2.14(b) contains a list of the names of all independent contractors who regularly perform services on behalf of the Company or the Subsidiary and to whom the Company or the Subsidiary paid more than $10,000 during the previous twelve (12) months. The parties listed therein are not, and are not deemed to be, employees (including as defined under the Code) of the Company or the Subsidiary for any purpose.
Section 2.15. Employee Benefits. Except as set forth in Schedule 2.15 attached hereto, neither the Company nor the Subsidiary is a party to and does not participate in, sponsor, contribute to or have any obligation to contribute to, or have any liability or contingent liability with respect to:
(i) Any “employee welfare benefit plan” or “employee pension benefit plan” (as those terms are respectively defined in Sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including any “multi-employer plan” (as defined in Section 3(37) of ERISA);(ii) Any employment agreement not terminable on thirty (30) days or less written notice, without further liability (the items referred to in, Sections 2.15(a)(i), (ii) and (iii) are sometimes individually referred to as an “Employee Plan” and collectively as “Employee Plans”); or(iii) Any retirement or deferred compensation plan, incentive compensation plan, stock option plan, stock plan, unemployment compensation plan, vacation pay, severance pay, bonus or benefit arrangement, insurance or hospitalization program or any other fringe benefit arrangements (hereinafter referred to collectively as “fringe benefit arrangements”) for any employee, director, consultant or agent, whether pursuant to contract, arrangement, custom or informal understanding, which does not constitute an “employee benefit plan” (as defined in Section 3(3) of ERISA).(b) A true and correct copy of each Employee Plan and all contracts relating thereto, or to the funding thereof, including, without limitation, all trust agreements, insurance contracts, investment management agreements, subscription and participation agreements and record keeping agreements, each as in effect on the date hereof, have been delivered or will be delivered or will be made available to Purchaser by the Company prior to the Closing Date. In the case of any Employee Plan which is not in written form, Purchaser has been provided with an accurate description of such Employee Plan as in effect on the date hereof. A true and correct copy of the three most recent annual reports, the most recent actuarial report, summary plan description (including any summary of material modifications issued since such summary plan description) and Internal Revenue Service determination letter with respect to such Employee Plan, to the extent applicable, and a current Schedule of assets (and the fair market value thereof assuming liquidation of any asset which is not readily tradable) held with respect to any such Employee Plan has been or will be supplied to Purchaser by the Company, and there have been no material changes, other than in the ordinary course, in the financial condition in the respective plans from that stated in the annual reports and actuarial reports supplied.
(c) Except as disclosed on Schedule 2.15 , as to each Employee Plan:
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(i) Each Employee Plan materially complies and has been administered, authorized and adopted in substantial compliance with its terms and all requirements of law and regulation applicable thereto, and neither the Company nor the Subsidiary has received any notice from any governmental agency questioning or challenging such compliance;(ii) Each Employee Plan intended to qualify under Sections 401(a) of the Code is so qualified and substantially complies in form and in operation with all applicable requirements of Sections 401(a) and 501(a) of the Code; and no event has occurred which will or could give reasonably be anticipated to rise to disqualification of any such plan under such Sections or to a tax under Section 511 of the Code;(iii) None of the assets of any Employee Plan are invested in employer securities or employer real property;(iv) There have been no “prohibited transactions” (as described in Section 406 of ERISA or Section 4975 of the Code) with respect to any Employee Plan for which no exemption is applicable and neither the Company nor the Subsidiary has otherwise engaged in any prohibited transaction;(v) No Employee Plan is, and neither the Company, the Subsidiary has ever maintained or contributed to (1) a “defined benefit plan” (as defined in Section 3(35) of ERISA), (ii) a “multiemployer plan” within the meaning of Section 3(37) of ERISA, (iii) a “multiple employer plan” within the meaning of Code Section 413 or a “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA, or (iv) a “welfare benefit fund” as defined in Section 419(e) of the Code, and neither the Company, the Subsidiary nor any ERISA Affiliate has any liability under Title IV of ERISA. No Employee Plan provides medical benefits (whether or not insured), with respect to any current or former employee of the Company or the Subsidiary after retirement or other termination of service (other than coverage mandated by applicable law);(vi) For purposes of this Agreement, “ERISA Affiliate” means each entity which is treated as a single employer with the Company or the Subsidiary under Code Sections 414(b), (c), (m) or (o);(vii) There have been no acts or omissions by the Company or the Subsidiary which have given rise to or could reasonably be expected to give rise to fines, penalties, taxes or related charges under Sections 502(c), 502(i) or 4071 of ERISA or Chapter 43 of the Code, for which the Company or Subsidiary may be liable;(viii) No current or former employee of the Company or the Subsidiary will be entitled to any payment, additional benefits or any acceleration of the time of payment or vesting of any benefits under any Employee Plan as a result of the transactions contemplated by this Agreement (either alone or in conjunction with any other event such as a termination of employment) (other than as a result of any Employee Plan terminated by the Company or by the request of Purchaser) and no trustee under any “rabbi trust” or similar arrangement in connection with any Employee Plan will be entitled to any payment as a result of the transactions contemplated by this Agreement;
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(ix) There are no actions, suits or claims (other than routine claims for benefits) pending or, to the knowledge of the Company, threatened involving or arising in relation to an Employee Plan or the assets of such Employee Plan, and, to the knowledge of the Company, no facts exist which could reasonably be expected to give rise to any such actions, suits or claims (other than routine claims for benefits);(x) Each Employee Plan that is a group health plan (including any plans of current and former affiliates of the Company or the Subsidiary which must be taken into account under Section 4980B of the Code or Section 601 of ERISA) have been operated in material compliance with the applicable group health plan continuation coverage requirements of the Consolidated Omnibus Reconciliation Act of 1985, as amended, the regulations thereunder, or any similar applicable state law with respect to each Employee Plan, the Company and the Subsidiary have complied with the applicable requirements of the Health Insurance Portability and Accountability Act, as amended, and the applicable requirements of the Family Medical Leave Act of 1993, as amended, the regulations thereunder or any similar applicable state law and the regulations thereunder;(xi) Actuarially adequate accruals for all obligations, if any, under each Employee Plan are reflected in the consolidated balance sheet of the Company as of December 31, 2004, contained in the 2004 Financial Statements and all contributions required to be made by the Company or Subsidiary have been made on or before their due date.(xii) There has been no amendment to, written interpretation of or announcement (whether or not written) by the Company, the Subsidiary or any ERISA Affiliate relating to, or change in participation or coverage under, any Employee Plan which would materially increase the expense of maintaining such plan above the level of expense incurred with respect to that plan for the most recent fiscal year included in the Company’s financial statements.Section 2.16. Environmental Matters.
(a) Except as set forth in Schedule 2.16 attached hereto, and except as would not result either individually or in the aggregate in a Material Adverse Effect, no Hazardous Materials (as such term is hereinafter defined) have been located in or on any of the real property owned, leased, subleased or otherwise used by the Company or the Subsidiary (hereinafter referred to as the “ Real Property ”) in violation of any applicable Environmental Laws (as such term is hereinafter defined) or have been released into the environment, or discharged, emitted, placed or disposed of at, on, or under or by the Real Property, and the Company’s operations and the Subsidiary’s operations thereon have complied with all applicable Environmental Laws. To the knowledge of the Company, none of the Real Property is a facility at which there has been a release of Hazardous Materials that exceeds or violates any applicable or relevant and appropriate Environmental Laws. To the knowledge of the Company, none of the Real Property is discharging oil or poses a substantial threat of a discharge of oil, within the meaning of the Oil Pollution Act of 1990. The Company has delivered to Purchaser or its agents all assessments, studies, sampling results, evaluations and other reports concerning any Hazardous Material, Hazardous Material Activity (as such term is hereinafter defined) or violation of any Environmental Law pertaining to the Company, the Subsidiary or the Real Property, which were commissioned by the Company. To the knowledge of the Company, no underground storage tanks are present at the Real Property. The Company
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and the Subsidiary have obtained and possess all permits, licenses, registrations, approvals and other authorizations required for the operations or facilities of the Company or respecting the Real Property by any applicable Environmental Law. Except as set forth in Schedule 2.16 , the Company, the Subsidiary and their operations and, to the knowledge of the Company, the Real Property are not now, and have not been in the past, a party to or, to the knowledge of the Company, threatened by any judicial, administrative or regulatory litigation, claim, proceeding or investigation arising from any Hazardous Material Activity or the operation or violation of any applicable Environmental Law. There are no grounds, facts, circumstances or other matters which might provide a basis for any liability or claim against the Company, the Subsidiary or the Real Property arising from any Hazardous Material Activity or the violation of any applicable Environmental Law, except for any liabilities and claims which in the aggregate will not have a Material Adverse Effect. (b) The term “ Environmental Laws ” shall mean any Federal, state, regional, county, local, governmental, public or private statute, law, regulation, ordinance, order, consent decree, judgment, permit, license, code, covenant, deed restriction, common law, or other requirement, pertaining to protection of the environment, health or safety of persons, natural resources, conservation, wildlife, waste management, any Hazardous Material Activity, or pollution (including, without limitation, regulation of releases and disposals to air, land, water and groundwater), and includes, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act, Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act and So | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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